TODAY’S STUDY: EU WIND INTEGRATION THRU 2050

A failure to plan is planning to fail and, by that standard, the U.S. Congress is planning failure for its New Energy industries. Congressional recalcitrants have persistently blocked any effort to create a comprehensive long-term U.S. energy policy, to put in place any long-term mandate or incentive for the New Energies, or to build a national transmission infrastructure to deliver New Energy-generated electricity from wind-rich rural regions to urban load centers.

Without long-term policy certainty and new transmission, the makers and builders of solar, wind, geothermal, hydrokinetic and bioenergy technology and infrastructure will simply migrate to markets where policy supports them. Case in point: Wind.

U.S. wind industry activity is slowing. Industry-watchers believe China, which is developing projects, building manufacturing capability and expanding its transmission capacity at an astonishing pace, will be shown to have taken over world installed wind leadership in 2010.

As the report highlighted below demonstrates, EU nations - which led the boom in utility-scale wind in the 1990s - are running out of available land for onshore wind projects, are serious about offshore wind and are making plans to support expansion with mandates, incentives and new, modern, high-capacity transmission infrastructure.

As a result, the news is filled with stories about U.S. New Energy pioneers signing deals to do their work in China and Europe.

There is also, to be sure, the occasional story about a U.S. solar or wind project. Such stories mainly serve to accentuate the drifting away of momentum.

Powering Europe: wind energy and the electricity grid
November 2010 (European Wind Energy Association)

Introduction

In order to achieve EU renewable energy and CO2 emission reduction targets, significant amounts of wind energy need to be integrated into Europe’s electricity system. This report will analyse the technical, economic and regulatory issues that need to be addressed in order to do so through a review of the available literature, and examine how Europe can move towards a more secure energy future through increased wind power production.

The report’s main conclusions are that the capacity of the European power systems to absorb significant amounts of wind power is determined more by economics and regulatory frameworks than by technical or practical constraints. Larger scale penetration of wind power faces barriers not because of the wind’s variability, but because of inadequate infrastructure and interconnection coupled with electricity markets where competition is neither effective nor fair, with new technologies threatening traditional ways of thinking and doing. Already today, it is generally considered that wind energy can meet up to 20% of electricity demand on a large electricity network without posing any serious technical or practical problems.

When wind power penetration levels are low, grid operation will not be affected to any significant extent. Today wind power supplies more than 5% of overall EU electricity demand, but there are large regional and national differences. The control methods and backup available for dealing with variable demand and supply that are already in place are more than adequate for dealing with wind power supplying up to 20% of electricity demand, depending on the specific system and geographical distribution. For higher penetration levels, changes may be needed in power systems and the way they are operated to accommodate more wind energy.

Experience with wind power in areas of Spain, Denmark, and Germany that have large amounts of wind energy in the system, shows that the question as to whether there is a potential upper limit for renewable penetration into the existing grids will be an economic and regulatory issue, rather than a technical one. For those areas of Europe where wind power development is still in its initial stages, many lessons can be learned from countries with growing experience, as outlined in this report. However, it is important that stakeholders, policy makers and regulators in emerging markets realise that the issues that TSOs in Spain, Denmark and Germany are faced with will not become a problem for them until much larger amounts of wind power are connected to their national grids.

The issues related to wind power and grid integration mentioned in this report are based on a detailed overview of best practices, past experiences, descriptions and references to technical and economic assessments. The report collects and presents detailed facts and results, published in specialised literature, as well as contributions from experts and actors in the sector. The aim is to provide a useful framework for the current debates on integrating wind power into the grid.

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Turning the Energy Challenge into a Competitive Advantage

Europe is importing 54% of its energy (2006), and that share is likely to increase substantially in the next two decades unless a major shift occurs in Europe’s supply strategy 2. Most of Europe’s oil comes from the Middle East and the larger share of its gas from just three countries: Russia, Algeria and Norway. The European economy relies on the availability of hydrocarbons at affordable prices. Europe is running out of indigenous fossil fuels at a time when fossil fuel prices are high, as is the volatility of those prices. The combination of high prices and high volatility pressures the energy markets, and increases the risk on energy investments, thus driving up energy prices including electricity prices. The continued economic and social progress of Europe will depend on its ability to decarbonise its energy mix in order to mitigate the risk to the climate, and use its indigenous renewable resources to mitigate the risk to its energy supply.

Without reliable, sustainable, and reasonably priced energy there can be no sustainable long term growth. It is essential that Europe develops its own internal energy resources as far as possible, and that it strongly promotes energy efficiency. Europe has always led the way in renewable energy capacity development, particularly due to the implementation of directives 2001/77/EC and 2009/28/EC for the promotion of the use of renewable energy sources in the European energy mix.

Europe has a particular competitive advantage in wind power technology. Wind energy is not only able to contribute to securing European energy independence and climate goals in the future, it could also turn a serious energy supply problem into an opportunity for Europe in the form of commercial benefits, technology research, exports and employment.

The fact that the wind power source is free and clean is economically and environmentally significant, but just as crucial is the fact that the cost of electricity from the wind is fixed once the wind farm has been built. This means that the economic future of Europe can be planned on the basis of known, predictable electricity costs derived from an indigenous energy source free of the security, political, economic and environmental disadvantages associated with conventional technologies.

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Wind power and European electricity

Due to its ageing infrastructure and constant demand growth, massive investment in generation plant and grids are required. Over the next 12 years, 360 GW of new electricity capacity – 50% of current EU electricity generating capacity – needs to be built to replace ageing power plants to meet the expected increase in demand. Since energy investments are long-term investments, today’s decisions will influence the energy mix for the next decades. The vision presented in this document shows that wind power meets all the requirements of current EU energy policy and simultaneously offers a way forward in an era of higher fuel and carbon prices.

Wind energy technology has made major progress since the industry started taking off in the early 1980s.

Thirty years of technological development means that today’s wind turbines are a state-of-the-art modern technology: modular and quick to install. At a given site, a single modern wind turbine annually produces 200 times more electricity and at less than half the cost per kWh than its equivalent twenty five years ago. The wind power sector includes some of the world’s largest energy companies. Modern wind farms deliver grid support services – for example voltage regulation – like other power plants do. Effective regulatory and policy frameworks have been developed and implemented, and Europe continues to be the world leader in wind energy.

Wind currently provides more than 5% of Europe’s electricity 4, but as the cheapest of the renewable electricity technologies, onshore wind will be the largest contributor to meeting the 34% share of renewable electricity needed by 2020 in the EU, as envisaged by the EU’s 2009/28 Renewable Energy Directive.

EWEA’s “Baseline” scenario for 2020 requires installed capacity to increase from 80 GW today to 230 GW in 2020. Wind energy production would increase from 163 TWh (2009) to 580 TWh (2020) and wind energy’s share of total electricity demand would increase from 4.2% in 2009 to 14.2% in 2020. EWEA’s ”High” scenario requires installed capacity to increase from 80 GW today to 265 GW in 2020. Wind energy production would increase from 163 TWh (2009) to 681 TWh (2020) and wind energy’s share of total electricity demand would increase from 4.2% in 2009 to 16.7% in 2020.

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On 7 October 2009, the European Commission published its Communication on “Investing in the Development of Low Carbon Technologies5 (SET-Plan)”stating that wind power would be “capable of contributing up to 20% of EU electricity by 2020 and as much as 33% by 2030” were the industry’s needs fully met. EWEA agrees with the Commission’s assessment. With additional research efforts, and crucially, significant progress in building the necessary grid infrastructure over the next ten years, wind energy could meet one fifth of the EU’s electricity demand in 2020, one third in 2030, and half by 2050.

Meeting the European Commission’s ambitions for wind energy would require meeting EWEA’s high scenario of 265 GW of wind power capacity, including 55 GW of offshore wind by 2020. The Commission’s 2030 target of 33% of EU power from wind energy can be reached by meeting EWEA’s 2030 installed capacity target of 400 GW wind power, 50 GW of which would be offshore. Up to 2050 a total of 600 GW of wind energy capacity would be envisaged, 250 GW would be onshore and 350 GW offshore. Assuming a total electricity demand of 4000 TWh in 2050 this amount of installed wind power could produce about 2000 TWh and hence meet 50% of the EU’s electricity demand.

In June 2010 the European Commission’s Joint Research Centre highlighted that provisional Eurostat data showed that in “2009 about 19.9% (608 TWh) of the total net Electricity Generation (3,042 TWh) came from Renewable Energy sources7. Hydro power contributed the largest share with 11.6%, followed by wind with 4.2%, biomass with 3.5% and solar with 0.4%.” It went on to conclude “that if the current growth rates of the above-mentioned Renewable Electricity Generation Sources can be maintained, up to 1,600 TWh (45 – 50%) of renewable electricity could be generated in 2020.”

Whilst the technology has been proven, the full potential of wind power is still to be tapped. Europe’s grid infrastructure was built in the last century with large centralised coal, hydro, nuclear and, more recently, gas fired power plants in mind. The future high penetration levels of wind and other renewable electricity in the power system require decision makers and stakeholders in the electricity sector to work together to make the necessary changes to the grid infrastructure in Europe.

By 2020, most of the EU’s renewable electricity will be produced by onshore wind farms. Europe must, however, also use the coming decade to exploit its largest indigenous resource, offshore wind power. For this to happen in the most economical way Europe’s electricity grid needs major investments, with a new, modern offshore grid and major grid reinforcements on land. The current legal framework, with newly established bodies ENTSO-E and ACER, the key deliverable of the 10-Year Network Development Plan, as well as the ongoing intergovernmental “North Seas Countries’ Offshore Grid Initiative” are all steps in the right direction and the political momentum for grid development and the integration of renewable energy is evident.

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Wind power in the system

Wind cannot be analysed in isolation from the other parts of the electricity system, and all systems differ. The size and the inherent flexibility of the power system are crucial for determining whether the system can accommodate a large amount of wind power. The role of a variable power source like wind energy needs to be considered as one aspect of a variable supply and demand in the electricity system.

Grid operators do not have to take action every time an individual consumer changes his or her consumption, for example, when a factory starts operation in the morning. Likewise, they do not have to deal with the output variation of a single wind turbine. It is the net output of all wind turbines on the system or large groups of wind farms that matters. Therefore, wind power has to be considered relatively to the overall demand variability and the variability and intermittency of other power generators.

The variability of the wind energy resource should only be considered in the context of the power system, rather than in the context of an individual wind farm or turbine. The wind does not blow continuously, yet there is little overall impact if the wind stops blowing in one particular place, as it will always be blowing somewhere else. Thus, wind can be harnessed to provide reliable electricity even though the wind is not available 100% of the time at one particular site. In terms of overall power supply it is largely unimportant what happens when the wind stops blowing at a single wind turbine or wind farm site.

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All power sources are fallible

Because the wind resource is variable, this is sometimes used to argue that wind energy per se is not reliable. No power station or supply type is totally reliable – all system assets could fail at some point. In fact, large power stations that go off-line do so instantaneously, whether by accident, by nature or by planned shutdowns, causing loss of power and an immediate contingency requirement. For thermal generating plants, the loss due to unplanned outages represents on average 6% of their energy generation. When a fossil or nuclear power plant trips off the system unexpectedly, it happens instantly and with capacities of up to 1,000 MW. Power systems have always had to deal with these sudden output variations as well as variable demand. The procedures put in place to tackle these issues can be applied to deal with variations in wind power production as well, and indeed, they already are used for this in some countries.

By contrast, wind energy does not suddenly trip off the system. Variations in wind energy are smoother, because there are hundreds or thousands of units rather than a few large power stations, making it easier for the system operator to predict and manage changes in supply as they appear within the overall system. The system will not notice when a 2 MW wind turbine shuts down. It will have to respond to the shut-down of a 500 MW coal fired plant or a 1,000 MW nuclear plant instantly.

Wind power is sometimes incorrectly described as an intermittent energy source. This terminology is misleading, because on a power system level, intermittent means starting and stopping at irregular intervals, which wind power does not do. Wind is a technology of variable output. It is sometimes incorrectly expressed that wind energy is inherently unreliable because it is variable.

Electricity systems – supply and demand - are inherently highly variable, and supply and demand are influenced by a large number of planned and unplanned factors. The changing weather makes millions of people switch on and off heating or lighting. Millions of people in Europe switch on and off equipment that demands instant power - lights, TVs, computers. Power stations, equipment and transmission lines break down on an irregular basis, or are affected by extremes of weather such as drought. Trees fall on power lines, or the lines become iced up and cause sudden interruptions of supply. The system operators need to balance out planned and unplanned changes with a constantly changing supply and demand in order to maintain the system’s integrity. Variability in electricity is nothing new; it has been a feature of the system since its inception.

Both electricity supply and demand are variable. The issue, therefore, is not the variability or intermittency per se, but how to predict, manage and ameliorate variability and what tools can be utilised to improve efficiency. Wind power is variable in output but the variability can be predicted to a great extent. This does not mean that variability has no effect on system operation. It does, especially in systems where wind power meets a large share of the electricity demand.

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European Renewable Energy Grid Vision 2010 – 2050

Objective

The grid map depicts the evolution of wind energy and other renewables in the European power system up to 2050. The map identifies the main renewable electricity production areas and consumption areas, and shows where the major power corridors would be situated in an integrated electricity market.

The map aims to outline the way to a renewable, fully integrated European power system by 2050, provided that the necessary grid infrastructure is developed and the market is fully integrated.

The grid map is made up of maps for five different years: 2010, 2020, 2030, 2040 and 2050. Each of these maps shows the main production areas and consumption areas and the corresponding dominant power flows along the transmission corridors. In this way, the reader can analyse the evolution of the main power generation capacities, the principle transmission routes, and the dominant power flows of specific generation sources along those transmission routes over time.

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Conclusion

The modelling analysis backs up the theory that increased wind power capacities will reduce power prices in the future European power market system.

It has been estimated that if wind power capacity increases by 200 GW in 2020 (reaching a total of 265 GW), this would give a merit order effect of €10.8 /MWh, reducing the average wholesale power price level from €85.8/MWh to €75/MWh.

However, this figure assumes a fully functioning market. It also includes the long-term investments forecast and is therefore based on the long-term market equilibrium. Simulated generation volumes in 2020 require economic feasibility with regards to long run marginal costs. Wind capacity replaces the least cost efficient conventional capacities so that the system is in equilibrium. This shift in the technology mix is the main reason for the observed merit order effect.

In reality this might not always happen. Power market bids are based on short run marginal costs, plants that are not cost efficient might be needed in extreme situations, for example when there is a lot of wind power on the system. The short-term effects of wind power are mostly related to the variability of wind power. The responding price volatility due to increased wind power stresses the cost efficiency of wind power generation. And in the real world, this would lead to a smaller merit order effect than analysed in the future optimal market equilibrium.

Consequently, the results of the study have to be considered carefully, especially considering the assumed future capacity mix, which includes a lot of uncertainties. Moreover, results should not be directly compared to recent literature, which usually estimate the short-term price effects of wind power. Here the market is not always in equilibrium and actual price differences and the merit order effect might therefore be very different.

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Moreover, the study estimates the volume merit order effect referring to the total savings brought about due to wind power penetration during a particular year. Assuming that the entire power demand is purchased at the marginal cost of production, the overall volume of the MOE has been calculated at €41.7 billion/year. But this should not be seen as a purely socio-economic benefit. A certain volume of this is redistributed from producer to consumer because decreased prices mean less income for power producers. Currently, only the long-term marginal generation which is replaced by wind has a real economic benefit, and this should be contrasted to the public support for extended wind power generation.

The scenarios were developed so that the modeling analysis could show the effect of the additional wind capacities on future power prices. For this reason, the main difference between the two scenarios is the amount of wind capacity. All other renewable sources and capacities have been kept at 2008 levels in both scenarios. Hence, there is no future capacity increase assumed for bio-energy, solar or geothermal energy resources. This, however, does not reflect a very realistic market development. A higher renewable share would influence the abatement costs to reach the defined CO2 emissions cap. Indirectly, this would also influence investment decisions in conventional fossil based technologies, especially in the Reference scenarios. However, it is difficult to estimate the outcome on the merit order effect. Lower emission levels and hence lower carbon prices might also lead to coal power becoming more cost-efficient. This might counteract the effect of renewables on emissions. It is therefore recommended that these impacts be studied in a more thorough sensitivity analysis with the help of a quantifying modelling tool.

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The sensitivity analysis resulted in an increase of the merit order effect by €1.9 /MWh when fossil fuel prices (gas, coal and oil) are increased by 25%. In the High fuel price case, wind power makes the power price drop from €87.7/MWh in the Reference scenario to €75/MWh in the Wind scenario. Comparing the resulting merit order effect in the High fuel case of €12.7/MWh to the Base case results of €10.8/MWh, the 25% higher fuel price case gives a merit order effect that is 17.5% higher.

The study showed that fuel prices have a major influence on power prices and marginal cost levels. The merit order effect has been mostly explained by the difference in the technology capacity and generation mix in the various scenarios, especially the differences in the development and utilisation of coal and gas power technologies. Investigating fuel price differences is therefore highly relevant. However, even stronger impacts on the merit order effect might be observed by changing the relative price differences of gas and coal price levels.

The study proved that carbon market assumptions and especially the resulting carbon price level will be a very important variable for the future power market and its price levels. Regarding the sensitivity of the assumed GHG emissions reduction target, the analysis illustrated higher equilibrium prices for the 30% reduction case than for the 20% reduction base case.

However, the results of the sensitivity analysis do very much depend on the assumptions for future abatement potential and costs in all EU ETS sectors, as well as in the industrial sectors.